ADB Project on Governance Reforms in Mongolia- Terminal Report Part-4 by Tarun Das

8/8/2019 ADB Project on Governance Reforms in Mongolia- Terminal Report Part-4 by Tarun Das

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ADB Project Terminal Report- Part-4 by Tarun Das

MOF, Govt. of Mongolia Glocoms Inc. (USA)215

ADB Project Terminal Report: Part-4:Chapters 9-11 on

(9) Immediate and Future Action Plan,(10) Budget Performance Evaluation, and

(11) Program Assessment Rating Tool (PART)

Professor Tarun Das1

Ministry of FinanceGovernment of MongoliaUlaanbaatar, Mongolia

July 2008

1Glocom Inc. (USA) Expert on Strategic Planning, ADB Capacity Building Project for

Governance Reforms, Ministry of Finance, Government of Mongolia. Earlier, Dr.Tarun Das worked as Economic Adviser, Ministry of Finance and PlanningCommission, Government of India and Professor (Public Policy), Institute forIntegrated Learning in Management (IILM), New Delhi, India.


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Table of Contents

Table of Contents Pages

PART-4 215-310

Acknowledgements 218-219

Project Team 220

Administrative Units of Mongolia 220

Major macro-economic variables 221

List of Reports prepared by the ADB Project Team 222-228

Chapter-9: Immediate and Future Action Plan 229-231

Chapter-10: Budget Performance Evaluation 232-254

Chapter-11: Program Budgeting and ProgramAssessment Rating Tool (PART)

255-271

Annexes 272-310

Annex-1: Eight Year (2008-2015) Action Plan forcomplete implementation of PSMFA

272-281

Annex-2: ADBCapacity Building ProjectTOR ComplianceReport as on 7 July 2008

282-292

Annex-3: Comments on the IMF TA Mission Report onthe Mongolian Budget, June 2008.

293-302

Annex-4: Design of a Training Program on PerformanceEvaluation and Program Assessment Rating Tool

303-307

Annex-5: List of Experts consulted 308-310


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Table of Contents: Parts 1, 2 and 3(Submitted earlier at the end of March 2008)

Table of Contents Pages

PART-1 1-70

Contents 2Acknowledgements 3

Project Team 4

Administrative Units of Mongolia 4

Major macro-economic variables 5

Document history 6-9

List of Abbreviations 10-11

Chapter-1: Major Conclusions and Recommendations 12-51

Annex-1: TOR and Compliance Report 52-58

Annex-2: Policy Matrix Compliance Report 59-62

Annex-3: Design of a Training Program for capacitybuilding for Performance Evaluation and ProgramAssessment Rating Tool (PART)

63-67

Annex-4: List of Experts consulted 68-70

PART-2 71-158

Chapter-2: Strategic Business Planning 73-100

Chapter-3: Output Costing and Output Budgeting 101-115

Chapter-4: Accrual Accounting and Accrual Budgeting 116-132

Chapter-5: Benchmarks and Best Practices 133-157

PART-3 158-214

Chapter-6: Financial Planning 160-191

Chapter-7: Core and Non-core functions 192-205

Chapter-8: Seven Year Action Plan (2008-2014) 206-214


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Acknowledgements

Initially Tarun Das, International Strategic Planning Expert, had a tenure of10 months for the period from June 1, 2007 to March 31, 2008 under theADB Capacity Building Project on Governance Reforms. At the end of March2008, a Terminal Report of the ADB Project containing three parts wasproduced and submitted to the Fiscal Policy and Coordination Department ofthe Ministry of Finance. The Report summarized the major reports producedunder the ADB Project and provided main conclusions and recommendationsof the ADB project. The Terminal Report also formulated an eight year(2008-2015) Action Plan to implement fully the preparation of PerformanceBased Accrual Output Budgeting (PBAOB) for all line ministries, Aimags andother budgetary bodies as mandated by the Public Sector Management andFinance Act (June 2002).

Subsequently, the term of ADB Project was extended until the end of

December 2008 and the term of the international consultant was extendedfor two months in intermittent basis during April 2008 to October 2008. Asper the work plan approved by Mr. Bazarsuren Batjargal, Director General,Fiscal Policy and Coordination Department of the Ministry of Finance, theinternational Strategic Planning Expert completed his first term during 22April to 21 May 2008 and second term during 9 June 2008 to 8 July 2008.This Part of the Terminal Report (Part-4) summarizes the outputs andrecommendations of the International Strategic Planning Expert during his

last term for two person months.

I take this opportunity to express my gratitude to all my benefactors, whom

one should always remember throughout ones lifetime. I would like toexpress my deepest gratitude to Dr. Maurence Anguh, Principal of GlocomsInc. Ltd., USA for recommending my candidature for the post of InternationalStrategic Planning Expert; Mr. Batjargal, DG, Fiscal Policy and CoordinationDepartment of the Mongolian Ministry of Finance for approving mycandidature and selecting me for the post; and the Asian Development Bankmanagement for giving the necessary concurrence. Special thanks are alsodue to Mr. D. Tulga, local representative of Glocoms in Ulaanbaatar, Mongoliafor making my stay in Ulaanbaatar very comfortable. In fact, Ulaanbaatarbecame a second home for me during June 2007 to July 2008.

This final report and the previous background reports have been produced

with the help of many people. I would like to thank everyone who has giventime in meetings and discussions and in the provision of basic data andinformation.

First of all, I am grateful to Mr. Batjargal Bazarsuren, Director General, FiscalPolicy and Co-ordination Department, Ministry of Finance for his continualsupport, strategic guidance and overall supervision. I am grateful to Mr. E.Sandagdorj, National Strategic Planning Expert, for providing valuable


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suggestions and constructive comments and providing all possible help forthe preparation of my reports. He also co-authored many of our reports.

I am also grateful to Mr. Nymaa Buyantogtokh, Director (ExpenditureDivision), Fiscal Policy and Coordination Department for valuable commentsand suggestions for improvement on our background papers. I express myspecial thanks to Mr. Jan Hansen, Financial Sector Specialist, CountryCoordination, Regional Cooperation, Governance, Finance and Trade Division,Asian Development Bank, Mania and in charge of the last phase of ADBCapacity Building Project for Mongolia for valuable discussions on our reportsduring his visits to Ulaanbaatar.

I would like to thank my colleagues Ms. Enkhtuul Khurel, Coordinator of theADB Capacity Building Project on Governance Reforms, Ms. D. Bolormaa,National IT Expert and Dr. David Lowey, International IT Expert for providingall possible help and encouragements at every stage of my works.

The Reports would not have been possible without the active participationand help by a wide range of stakeholders in the Line Ministries. I would liketo express my sincere thanks to numerous officers, national and internationalconsultants in the line ministries, particularly the Ministry of Finance (MOF),Ministry of Education, Culture and Science (MOECS), Ministry of Health(MOH), Ministry of Justice and Internal Affairs (MOJIA), Ministry of Road,Transport and Tourism (MORTT) and the Ministry of the Social Welfare andLabour (MOSWL) for their enthusiastic cooperation, keen interest, useful

discussions and for providing all relevant information and documents,sometimes at a very short notice.

I am also grateful to the international and national consultants engaged inthe World Bank counterpart projects viz. Economic Capacity BuildingTechnical Assistance Credit (ECTAC) Project and Governance AssistanceProject (GAP) for valuable comments on our background papers.

I would like to thank all the participants of the half-day Workshop onStrategic Planning conducted at the Ministry of Finance on the 28 th August2007, and the participants of the two-day Workshop on output costing andoutput budgeting, accrual accounting, benchmarks and performanceparameters held at the Corporate Hotel on 29-30 November 2007 for veryfruitful discussions, valuable suggestions and comments.

It is needless to mention that the authors are solely responsible for the viewsexpressed in the paper and for any errors and omissions.

Tarun Das,International Strategic Planning ExpertUlaanbaatar, MongoliaThe 7th July 2008.


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ADB Capacity Building Project on Governance Reforms

Project Team

Project Supervisor Mr. Batjargal Bazarsuren, DG,Fiscal Policy and Coordination Dept.,Ministry of Finance

Project Coordinator Ms. Enkhtuul Khurel

National Consultanton Strategic Planning

Mr. E. Sandagdorj

National IT Consultant Ms. D. Bolormaa

International IT Consultant Mr. David Lowey, Ph. D.

International Consultanton Strategic Planning

Mr. Tarun Das, Ph.D.,Glocom Inc. (USA).

Administrative units of Mongolia

Aimag province Mongoliais divided into 21 Aimagsand theUlaanbaatarcapital city

Soum or District county Aimagsare divided into 3-27 Soums (Total 331 Soums)

District Thecapital city (Ulaanbaatar)is divided into 9 districtsBags thesmallestadministrative units (19-121) ofAimags (Total 1543 bags)Khoroos thesmallestadministrative unitinthecapital city (Total 121 Khoroos)

Administrative System- comprises Local RepresentativeMeetinginthecapital city/Aimags,and

Soums/Districts;and Citizensmeetinginthe Bags/ Khoroos.


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Fiscal year: 1st January to 31st December

Major macro-economic variables:

Items Units 2005 Rank in the World

from top in 2005

Area Millionsq.kms.

1.56 19

GDP PPP Billion US$ 5.85 151

Population Million 2.55 137

GDP PPP per capita US$ 1983 176

GDP per capita US$ 736 148

Poverty ratio Percent 36

Items Units 2005 2006 2007

Real GDP growth rate Percent 7.0 8.7 9.9

CPI Inflation rate Percent 9.5 7.0 8.6

Interest rate on central

bank bills

Percent 3.7 5.8 6.4

GR of money supply Percent 37.3 34.9 43.8

Overall budget balance As % ofGDP 3.2 3.3

-1.0

BOP Current A/C balance As % ofGDP

1.4 5.2 NA

Total public debt As % ofGDP

68 54 NA

Total external debt As % ofGDP

64 51 NA

Year end foreign exch.

reserves

Million US$ 333 626 1290


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List of Reports Prepared by the ADB Capacity Building ProjectOn Governance Reforms during June 2007 to July 2008

A. Terminal Reports

1. ADB Project Terminal Report, Part-1, Executive Summary, MajorConclusions & Recommendations, pp.1-74, ADB Capacity BuildingProjects on Governance Reforms, Min of Finance, Govt of Mongolia,Ulaanbaatar, Mar 2008.

2. ADB Project Terminal Report, Part-2, Strategic Planning, OutputBudgeting, Accrual Accounting, Benchmarks Setting, pp.1-74, ADBCapacity Building Projects on Governance Reforms, Min of Finance,Govt of Mongolia, Ulaanbaatar, March 2008.

3. ADB Project Terminal Report, Part-3, Financial Planning and Policies,

Core and Non-Core Functions, and Seven Year Action Plan, pp.1-74,DB Capacity Building Projects on Governance Reforms, Min of Finance,Govt of Mongolia, Ulaanbaatar, March 2008.

4. ADB Project Terminal Report, Part-4, Budget Performance Evaluation,Program Budgeting and Program Assessment Rating Tool (PART), pp.1-45, ADBCapacity Building Projects on Governance Reforms, Min of Finance, Govt ofMongolia, Ulaanbaatar, June 2008.

B. Strategic Business Planning

5. Ministry of Finance (MOF) Strategic Business Plan 2005-2006-Comments and Suggestions for Improvement, pp.1-37, June 2007.

6. Ministry of Education, Culture and Science (MOECS) Strategic BusinessPlan 2006-2008- Comments and Suggestions for Improvement, pp.1-20, June 2007.

7. Ministry of Health (MOH) Strategic Business Plan 2005-2008-Comments and Suggestions for Improvement, pp.1-20, June 2007.

8. Ministry of Social Welfare and Labour (MOSWL) Strategic BusinessPlan 2005-2008- Comments and Suggestions for Improvement, pp.1-

20, June 2007.

9. Summary Report of comments on Strategic Business Plans for MOF,MOECS, MOH and MOSWL, pp.1-5, June 2007.

10. Power Point Presentation on Preparation of Strategic Business Plans-General Guidelines and Some Suggestions for Improvement, Part-1,


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pp.1-29, August 2007, presented at the Workshop on the 28 th August2007 at the MOF.

11. Power Point Presentation on Preparation of Strategic Business Plans-General Guidelines and Some Suggestions for Improvement, Part-2,pp.1-54, August 2007, presented at the Workshop on the 28 th August2007 at the MOF.

12. Accompanying Text on Preparation of Strategic Business Plans andGeneral Guidelines, pp.1-25, for Workshop held on the 28th August2007 at the MOF.

13. Preparation of Strategic Business Plans- General Guidelines andSummary of Recommendations, Interim Report, pp.1-41, 31 August2007.

14. Preparation of Strategic Business Plans- General Guidelines,

Suggestions for Improvement, and Summary of Recommendations,Final Report, pp.1-74, 30 Sept 2007.

15. Report at 5 is translated into Mongolian by E. Sandagdorj, SPE.16. Report at 9 is translated into Mongolian by E. Sandagdorj, SPE.17. PPP at 10 is translated into Mongolian by E. Sandagdorj, SPE.18. PPP at 11 is translated into Mongolian by E. Sandagdorj, SPE.19. Report at 12 is translated into Mongolian by E. Sandagdorj, SPE.

20. Report at 14 is translated into Mongolian by E. Sandagdorj, SPE.

B. Output Costing and Output Budgeting

21. Output Costing and Output Budgeting- Basic Concepts andMethodology, pp.1-51, October 2007.

22. PPP on Output Costing and Output Budgeting: Part-1: Current Statusand Action Plan, pp.1-39, for the Workshop held at the Corporate Hotelon 29-30 Nov 2007.

23. PPP on Output Costing and Output Budgeting: Part-2: UpgradingInfrastructure, pp.1-24, presented at the Workshop held at theCorporate Hotel on 29-30 Nov 2007.

24. PPP on Output Costing and Output Budgeting: Part-3: Output CostingFramework, pp.1-42, presented at the Workshop held at the CorporateHotel on 29-30 Nov 2007.

25. PPP on Output Costing and Output Budgeting: Part-4A: OutputCosting Methodology, pp.1-32, presented at the Workshop held at theCorporate Hotel on 29-30 November, 2007.


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26. PPP on Output Costing and Output Budgeting: Part-4B: Case Studies,pp.1-24, presented at the Workshop held at the Corporate Hotel on29-30 November 2007.

27. PPP on Output Costing and Output Budgeting: Part-4C: Accrualaccounting, pp.1-26, presented at the Workshop held at the CorporateHotel on 29-30 Nov 2007.

28. Output Costing Methodology for Software Selection- Basic Conceptsand Some Advices for Selection, pp.1-9, December 2007.

29. Comparative Evaluation of the Australian ABC-FOCUS Software andthe local Mongolian ALOCOUS Software for Output Costing, pp.1-17,January 2008.

30. Report at 21 is translated in Mongolia by E. Sandagdorj, SPE.31. PPP at 22 is translated in Mongolia by E. Sandagdorj, SPE.

32. PPP at 23 is translated in Mongolia by E. Sandagdorj, SPE.33. PPP at 24 is translated in Mongolia by E. Sandagdorj, SPE.34. PPP at 25 is translated in Mongolia by E. Sandagdorj, SPE.35. PPP at 26 is translated in Mongolia by E. Sandagdorj, SPE.36. PPP at 27 is translated in Mongolia by E. Sandagdorj, SPE.37. Report at 28 is translated in Mongolian by D. Bolormaa, IT Expert.38. Report at 29 is translated in Mongolian by D. Bolormaa, IT Expert.

C. Accrual Accounting and Accrual Budgeting

39. Accrual Accounting and Accrual Budgeting- Basic Concepts and

Methodology, pp.1-43, November 2007.

40. Transition from Cash to Accrual Accounting pp.1-26, November 2007.

41. Accrual Accounting Rules for the Govt Finance Statistics, pp.1-36,February 2008.

42. Glossary for Accrual Accounting and GFS, and Glossary for FinancialStatistics, pp.1-38, February 2008.

43. Report at 39 is translated in Mongolia by E. Sandagdorj, SPE.44. Report at 40 is translated in Mongolia by E. Sandagdorj, SPE.

45. Report at 41 is translated in Mongolia by E. Sandagdorj, SPE.

D. Benchmarks Setting and Best Practices

46. Benchmarks Setting and Best Practices for Output Costing and OutputBudgeting- Part-1: Basic Concepts, pp.1-31, Dec 2007.


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47. Benchmarks Setting and Best Practices for Output Costing and OutputBudgeting- Part-2: Practical Applications for Mongolia, pp.1-36,December 2007.


E. Financial Planning Methodology and Policies

50. Financial Planning - Part-1: Methodology, pp.1-34, Jan 2008.

51. Financial Planning Methodology and Policies- Part-2: Policies, pp.1-32, Jan 2008.


F. Core and Non-Core Functions

54.Core and non-core functions of the government of Mongolia- a criticalassessment pp.1-36, Feb 2008.

55.Report at 54 is translated in Mongolia by E. Sandagdorj, SPE.

G. Budget Performance Evaluation and Program Assessment

56. Budget Performance Evaluation- Methodology, Systems and Management, pp.1-55, ADB Capacity Building Projects on Governance Reforms, Ministry ofFinance, Government of Mongolia, Ulaanbaatar, May 2008.

57. An Introduction to Program Budgeting, Program Evaluation Review Technique(PERT) and ProgramAssessment Rating Tool (PART), pp.1-36, ADB CapacityBuilding Projects on Governance Reforms, Ministry of Finance,Government of Mongolia, Ulaanbaatar, May 2008.

58. Program Assessment Rating Tool- Methodology and Application for Mongolia,pp.1-50, ADB Capacity Building Projects on Governance R Reforms,Ministry of Finance, Government of Mongolia, Ulaanbaatar, July 2008.



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H. Miscellaneous Technical Reports

61. A Balance Sheet for the Mongolia Development Fund for the years2007-2008 (pp.1-5), June 2007.

62. A Report on the National Workshop on Bond Market, organised jointlyby UN-ESCAP, ADB and Bank of Mongolia (BOM) at the CorporateHotel, Ulaanbaatar during 21-22 June 2007, pp.1-5.

63. Comments on the IT Group Report on the Budget PreparationInformation Systems (BPIS) - Budget Business Process Report, pp.1-6,15 July 2007.

64. Comments on the IT Group Report on BPIS- Information SystemsArchitecture, pp.1-5, August 2007.

65. Comments on the IT Group Report on BPIS Functional Requirements,

pp.1-3, August 2007.

66. Comments on two Reports on Policy and Expenditure PlanningStatements (PEPS) for Pre-school Education and Science andTechnology of the MOECS, prepared by the World Bank Consultants,World Bank ECTAC Project, pp.1-2, August 2007.

67. Comments on the report of the IMF Mission on Budget Modernization

by Mongolian Government, pp.1-7, August 2007.

68. Comments on the report of the IMF Mission on Government Finance

Statistics (GFS) and Migration to GFSM 2001, pp.1-5, August 2007.

69. ADB Project and World Bank ECTAC Project Coordination Plan, pp.1-3,August 2007.

70. Official Economic statistics- Part-1 on Government Finance Statistics(GFS), Balance of Payments (BOP) Statistics and Rest of the WorldAccount, pp.1-70, lectures delivered at the United Nations StatisticalInstitute for Asia and Pacific, at Chiba, Japan, on 20-25 August 2007.

71. Official Economic Statistics- Part-2 on Monetary and Financialstatistics (MFS), MultiFactor Productivity Measures (MFP), and

Workout Sessions, pp.1-62, lectures delivered at the United NationsStatistical Institute for Asia and Pacific, at Chiba, Japan, during 20-25 August 2007.

72. Mainstreaming MDGs through National Development Strategies, Vol-1,Main Report, pp.1-84, presented at the Regional MDG Workshop jointlyorganised by ADB, UNDP and UN-ESCAP at Bangkok, 15-16 Oct 2007.


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73. Mainstreaming MDGs through National Development Strategies, Vol-2, Annexes on policies, programs and challenges for povertyreduction in 14 countries, pp.1-79, presented at the Regional MDGWorkshop jointly organised by ADB, UNDP and UN-ESCAP atBangkok, 15-16 October 2007.

74. Comments on the Mongolia Second National Report on MillenniumDevelopment Goals Implemention in 2005-2006,pp.1-4, Oct 2007.

75. A Seven Year (2007-2013) Action Plan to implement the provisionsof the PSMFA (2002) as regards preparation of Strategic BusinessPlans on the basis of Accrual Output Budgeting (AOB) andPerformance Based Budgeting (PBB), pp.1-21, November 2007.

76. Report at 75 is translated in Mongolian by E. Sandagdorj, SPE.

77. An abridged version of Report 76 prepared by E. Sandagdorj has

been included in the Mongolian Draft Budget for 2008.

78. Roll Out Plan for the ADB Project on Capacity Building on GovernanceReforms, pp.1-3, December 2007.

79. ADB Capacity Building Project on Governance Reforms- Policy MatrixCompliance Report for 2007, pp.1-5, January 2008.

80. Executive Summary of the Mongolia Seven-Year Capacity BuildingAction Plan for 2008-2014, pp.1-6, Jan 2008.

81. Report 80 is translated in Mongolian by E. Sandagdorj, SPE.

82. A comparative analysis of budget planning, preparation, approvaland execution systems in Mongolia and Thailand, pp.1-11, Mar 2008.

83. Report 82 is translated in Mongolian by E. Sandagdorj, SPE.

84. ADB Capacity Building Project on Governance Reforms- Policy MatrixCompliance Report An Update, pp.1-8, March 2008.

85. Comments on the IMF Technical Assistance Mission Report onMongolian Budget, pp.1-20, June 2008.

I. Monthly and Terminal Progress Reports

86. Monthly Progress Report for June 2007, pp.1-2, June 2007.

87. Monthly Progress Report for July 2007, pp.1-2, July 2007.

88. Monthly Progress Report for Aug 2007, pp.1-2, August 2007.

89. Monthly Progress Report for Sept 2007, pp.1-2, September 2007.


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90. Quarterly Progress Report for July-Sep 2007, pp.1-3, Sep 2007.

91. Monthly Progress Report for Oct 2007, pp.1-2, Oct 2007.

92. Monthly Progress Report for Nov 2007, pp.1-2, Nov 2007.

93. Monthly Progress Report for Dec 2007, pp.1-2, Dec 2007.

94. Monthly Progress Report for Jan 2008, pp.1-2, Jan 2008.

95. Monthly Progress Report for Feb 2008, pp.1-2, Feb 2008.

96. Monthly Progress Report for Mar 2008, pp.1-2, Mar 2008.

97. Terminal Progress Report- Compliance Report on the ADB Terms ofReference for the Strategic Planning Expert, pp.1-9, March 2008.

98. Monthly Progress Report for April-May 2008, pp.1-2, May 2008.

99. Monthly Progress Report for June-July 2008, pp.1-2, July 2008.

100.Terminal Progress Report- Compliance report on the ADB TOR for theStrategic Planning Expert- An Update, pp.1-10, July 2008.


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Chapter-9

Immediate and Future Action Plan

1. The Assigned Task

The ADB Capacity Building Project on Governance Reforms is scheduled toend in December 2008. It had the following basic tasks:

(1) To prepare detailed Manuals and Guidelines on StrategicBusiness Planning, Output Costing and Output Budgeting,Accrual Accounting and Accrual Budgeting, Benchmarks settingand international best practices, Performance evaluation andprogram assessment, Ex Ante Financial Planning, Identificationof Core and Non-core functions of the government,

(2) To provide training on these subjects to the officials engagedin preparation, implementation, monitoring and evaluation ofbudgets, and

(3) To assist in the preparation of Strategic Business Plans andPerformance Based Accrual Output Budgeting, as mandated bythe Public Sector Management and Finance Act (June 2002),in four pilot line ministries viz. Ministry of Finance (MOF),Ministry of Health (MOH), Ministry of Education, Culture andScience (MOECS) and Ministry of Social Welfare and Labour

(MOSWL).

2. Current Status of Progress

Broadly speaking, ADB Project has been highly successful and majortasks have been fulfilled. The International and National Consultants onStrategic Planning under the ADB Project have already prepared detailedManuals and Guidelines in both English and Mongolian on Strategic Planning,Output Budgeting, Accrual Accounting, Benchmarks Setting, Ex-ante FinancialPlanning, Performance Evaluation and Program Assessment Rating Tool (PART)for the budgetary bodies.

Significant progress has been made for improving the technical capabilities of thestaff engaged in budget formulation, strengthening Information Technology (IT)system and creating general awareness of all stakeholders about the usefulnessand necessity of modern techniques for budgeting on the basis of accrualaccounting, benchmarks and performance parameters.

Medium Term Strategic Plans (2008-2010) have been prepared for selected lineministries. Program Budgeting has been introduced in the 2008 budget in four


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pilot line ministries viz. Ministry of Health (MOH), Ministry of Education, Cultureand Science (MOECS), Ministry of Social Welfare and Labour (MOSWL) andMinistry of Food and Agriculture (MOFA) as a prelude to the ultimate adoption ofperformance based accrual output budgeting (AOB). They have also providednecessary training for upgrading skill of the budget personnel.

3. Unfinished Agenda

Despite these efforts and good results during the last few years, there is stillunfinished Agenda as regards the following:

(1) Line ministries are yet to prepare fully the Performance BasedAccrual Output Budgeting (PBAOB) which is required under thePSMFA (2002). World Bank ECTAC Project Team has producedProgram Budgets for the MOH, MOECS, MOSWL and MOFA forthe budget year 2008. But, Program Budgeting is only a firststep towards the Accrual Output Budgeting2.

(2) Most of the budgetary entities including the Aimags are yet toprepare Strategic Business Plans and move towards AccrualOutput Budgeting due to constraints on financial resources,technical man power and supporting ICT system.

4. Future Action Plan

Above observations lead to the conclusion that the successful implementation ofthe PSMFA (2002) as regards strategic business plans and output budgeting onthe basis of accrual accounting and benchmarks will require the following actions

on a priority basis by the present government of Mongolia:

(1) To consolidate the progress made until now by properdocumentation in both English and Mongolian;

(2) To build up necessary institutions for modernizing budgets;(3) To build up capacity and skill of the personnel engaged in planning,

budgeting, accounting and auditing;(4) To strengthen and upgrade the information technology system to

support the budget modernization process and systems.(5) To conduct all these works in a time-bound systems framework but

step by step and in a phased manner.

In order to complete these works successfully, an eight year (2008-2015)Action Plan has been proposed for the Government of Mongolia withMinistry of Finance taking the lead role. The details of the Action Plan areexplained in Annex-1.

2 Thisaspectisexplained in detailsinmy Comments onthe IMF TAMission Team, June 2008, reproduced

inAnnex- inthis Report.


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5. Immediate Action Plan

In order to reap the full benefits and to bring the ADB Capacity Building Project toits logical conclusion, it is strongly recommended that the ADB Capacity

Building Project on Governance Reforms needs to be extended for 12months until the end of December 2009 to accomplish the following tasks:

1. To roll out medium-term expenditure program budgeting and outputcosting from the current pilot ministries to all portfolio ministries andselected budgeted entities;

2. To advise and assist the portfolio ministries in preparation of the mediumterm (2010-2012) strategic planning and performance based accrualoutput budgets (AOB) through training and capacity building;

3. To align and integrate fully the output budgeting and accrual accountingmethodology with the IT systems for budgeting and accounting;

4. To procure additional hardware and software for integrated outputbudgeting and accrual accounting; and

5. To disseminate the findings of these studies through publications anddevelopment of dedicated government websites for budget information.

The completion of the above mentioned tasks will require engagement of thefollowing experts during January to December 2009:

(1) An International Strategic Planning Expert for four person months onintermittent basis,

(2) Two National Strategic Planning Experts for 12 months on continualbasis;

(3) An International IT Expert for two months on intermittent basis;(4) One National IT Expert for 12 months on continual basis; and(5)A Project Coordinator for 12 months on continual basis.


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Chapter-10

Budget Performance Evaluation (BPE)

1. Introduction, Scope and Objectives

Eventually Alice in Wonderland realized that it matters a great deal to knowwhere to goand how to get there. Similarly, in government budget it is

important to know the basic goals and objectives and the overall scope of

budgeting in terms of exact outputs and outcomes, and how to achieve thesegoals, objectives, outputs and outcomes in time and with least cost.

Strategic Planning, Budget Formulation, and Performance Management Cycleis an interactive on-going process to facilitate sound government businessand financial plan. Budget Performance Evaluation (BPE) makes a detailedand critical analysis of the multi stakeholders requirements, develops actionplans and allocates resources by integrating budget and performance goals.Government resources are not unlimited and there are constraints on publicresources and competing demands by various social sectors, public goodsand services. Consequently, an optimal resource planning and budgetingrequires that strategic planning, budget and performance management must

be integrated in a comprehensive and time bound plan.

1.1 The Budget and Public Sector Performance

Performance budgeting is primarily a management, transparency andfinancial accountability tool rather than a mere budgetary instrument.Effective and efficient delivery of public goods and services by budgetaryagencies requires performance management, under which an Agencyestablishes its service objectives and monitors performance towards theattainment of those objectives. Meyers (1996) has identified 11characteristics of an effective budget which supports performance. These

characteristics include Accountability, Comprehensiveness, Hard BudgetConstraints, Cooperation, Honesty, Judgment, Legitimacy, Perception,Responsiveness, Timeliness and Transparency (for detailed definitions seeTarun Das 2008).

Would you tell me please, whichway I ought to go from here? askedAlice.That depends a great deal on where you want to get to, said the cat.I dont much care where ., saidAlice.Then it does not matterwhichway you go, said the cat.

--- Extract from Alice in Wonderland, Lewis B. Carroll


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Some of these characteristics for an effective budget relate to the processof budget prioritization (comprehensiveness, perception), while othersrelate to operational efficiency (cooperation, timeliness). Major factors thatmight affect adversely the budget performance include Extra-budgetaryFunds, Earmarked Funds (Earmarking), Unpredictability and UnreliableInformation (for detailed definitions see Tarun Das 2008).

1.2 Performance Based Budgeting

A performance budget is an integrated annual performance plan that showsthe relationship between program funding levels and expected results. Aprogram performance budget defines all activities, direct and indirect,required by a program, in addition to estimating activity costs. The followingfigure outlines this process. By tracking the cost and number of units foreach activity, output, and outcome, unit cost information also may begenerated.

Money Activity Output Outcome Strategic Goals

Recently many countries have focused their attention to governance reformsand the role of performance based budgeting. As in the case of many aspectsof Budget Modernization techniques, Australia and New Zealand havedeveloped over the years very extensive performance based budgetingmethodology and systems. The common principles in Australia and NewZealand relate to governance reforms and the institutionalization of

performance standards in budgets:

(i) Budget transparencyis the key issue. In Australia, for example, thereis a requirement for three-year forward estimates and for reporting ofbudgetary versus actual budgetary allocations for the previous year. Underthe Public Sector Management and Finance Act (PSMFA, 27 June 2002)government of Mongolia has also adopted the same requirement3.

(ii) Decentralization of operating functions is another importantdevelopment. Under the system of portfolio budgeting, line agencies arerequired to prepare multi-year Strategic Business Plans indicating vision,

mission, objectives and priorities, and identifying spending and revenuemeasures necessary to meet aggregate fiscal targets set by the HeadQuarter. PSMFA of Mongolia also mandates the same requirements4.

3Articles 26.1, 26.2 and 26.3 ofthe Public Sector Managementand FinanceAct (PSMFA, 27 June 2002).4Articles 26.1, 26.2 and 26.3 ofthe Public Sector Managementand FinanceAct (PSMFA, 27 June 2002).


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1.3 Integration of Strategic Plan with Program Budget

To accomplish its strategic objectives effectively, an Agency must link

outcomes, strategy, budget, and performance into an integratedmanagement system. This management system, based on a model of

continuous improvement, is shown in Flow Chart-1 below:

Flow-Chart-1: Strategic Plan and Performance Based Budgeting Cycles:Source: John Mercer, regarded as the father of the USA GPRA, 1993.

The process begins with an understanding of important national priorities andoutcomes, which are then translated into broadly defined goals and intendedresults for the Agency. These become the Agencys strategic goals andstrategic objectives. Outcomes and Outputs related to these strategic goals

and objectives are then articulated. Programs are developed to achieve theseoutcomes and outputs with least resources, and then performance measures

and indicators are identified to provide the means to assess the progressmade during the budget year and to suggest improvements for the nextyears budget. Flow Chart-2 below explains the relationship between anAgencys Medium Term Strategic Business Plan and its Annual ProgramBudget and performance evaluation.

PerformanceAssessment and

Improvement Plan

Compares actual totarget performance andbenchmarks.

Determine changes thatwill produce the bestvalue.

Program Budget andPerformance Planning

Program Budgets- Funds allocated to

specific programs to achieve desired goals,outputs, and outcomes with least cost. Performance - specifically designed results Value- achieving value for money Establish long-term and annual targets for

spending, performance and value.

Strategic Business PlanBroadly defines strategic goals, outcomes, outputs of an

Agency and the methods to achieve them.

Performance MonitoringTrack the progress, expenditure, and value for

money for achieving outcomes.


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2. Budget Performance Evaluation Methodology

Budget Performance Evaluation involves five main steps as the following:

1.Review of Baseline Scenario and Budget Profile2.Diagnostic Scan and SWOT Analysis

3.Budget Compliance, Efficiency and Effectiveness Evaluation4.Performance Evaluation5.Major Findings and Recommendations

Strategic Business Plan Next Years Budget

Vision, Mission, Strategyand Objectives

Performance Monitoring andEvaluation throu h PART

Performance IndicatorsAnd Measures

Performance IndicatorsAnd Measures

Program OutcomesAnd Outputs

Strategic OutcomesAnd Outputs

Program BudgetsActivities and Processes

Resources forThe Bud et Year

Inputs (Staff, Funds,Goods, Services, ICT)

Flow Chart-2: Integration of Strategic Business Plan,Program Budget and Performance Evaluation

Improvement Plan

Strategic Goals


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2.1 Review of Baseline Scenario and Budget Profile5

In undertaking a performance evaluation, it is necessary to start with abaseline and initial profile and to identify the key issues on which theperformance evaluation is to be focused.

Table-1: Scope of Performance Review and the Initial Profile

Scope of PerformanceReview:

Scope of Initial Profile (say for the Budgetyear 2008):

1.Strategic Business Plans 1.Scope, Governance, Vision, Mission andobjectives

2.Scope of review 2.Main functions, programs and activities

3.Review steps and keymilestones

3.Structure, staffing and time schedules

4.Preliminary assessment 4.Program-wise Budgeted funds

5.Focus of review 5.Output costs, benchmarks and performanceparameters

This assessment allows an agency to take a detailed look at their current businessactivities and how they wanted to perform in the budget review year. Agencies will beasked to provide a brief description6 of their Strategic Business Plan with vision, mission,objectives and goals. They will also be asked to provide summary of their programbudgets, which is being reviewed, with budgeted resources, outputs and outcomes.

Agencies will be required to provide details of workforce size, their functions and skills,workload volume and contributions to the strategic planning. Template-1 attached tothis chapter provides detailed Template for Review of Baseline Scenario andBudget Profile.

2.2 Diagnostic Scan and SWOT Analysis

A diagnostic scan of an Agency is necessary before starting a performancereview, because actual performance is influenced by constraints onresources, technical manpower and the ICT system. There are basically twotypes of review- strategic review and operational review.

Strategic Review:How well an Agency manages its external environment by delivering

relevant and effective services.

Operational Review:

5Annex-1 ofthischapter providesthe detailed Template for Review of Baseline Scenario, Strategic Planand Budget Profile.

6Agenciesarenot supposed to hand over the original copies of the Strategic Business Plan (SBP)and

Budget documentwhichtheyhad earliersupplied to theMOF. Theyare required to makeasummary ofthe

SBP andbudgeted programs.


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How well an Agency manages its internal environment by using itsresources efficiently and prudently.

Both desktop and field scans are required to determine the following aspects:

whether best practice techniques were attempted;

whether the practice was documented; and

Whether it was widely applied within the agency.

The desktop scan involves checking the existing material on strategic plansand program/ output budgets already submitted by the Agency to theMinistry of Finance, whereas field scans involve conducting surveys andinterviewing key stakeholders (clients, community groups, staff andmanagement), to obtain their views on how internal management tools areworking in practice.

There are 8 possible strategic review areas and 8 operational review areas asindicated in Table-2.

Table-2 Strategic Review and Operational Review Areas

Strategic review areas Operational review areas

1.Strategies 9. Work Culture

2.Environment 10. Communications

3.Clients 11. Organisation structure

4.Other stakeholders 12. Reporting Lines

5.Regulation 13. Human resources

6.Policy regime 14. Processes and systems

7.Service delivery 15. Controls

8.Reviews 16. Cost and Asset management

For each of these 16 areas, it is necessary to test whether the agency hasapplied any typical best practice management techniques. For example,when examining Clients, agencies would be asked whether they have

applied any of the following types of management practices e.g. client needsanalysis, client segmentation, clients satisfaction surveys, grievances andcomplaints handling and so on. When examining Controls and Cost andAsset Management, agencies would be asked if they use the followingpractices e.g. financial information system, management information system,asset management plan and corporate overhead costs analysis, etc.Template-2 attached to this chapter provides a detailed Template forStrategic & Operational Evaluation


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Table-3A: Typical Best Practices for Strategic Review

Strategic Review Areas

(number of sub-areas)

Typical Best Management Practices

1. Strategies (2) Strategic Business Plan, Master Plan

2. Environment (2) Socio-Economic-Political Environment Analysis,SWOT Analysis.

3. Clients (2) Clients Needs and Satisfaction Surveys,Grievances and Complaints Handling.

4. Other Stakeholders (2) Stakeholders Consultation, Focus Groups

5.Regulation (2) Regulatory Review, Parliamentary Consultative

Committee Review

6. Policy (2) Ministerial Review, Donors Review

7. Service Delivery (2) Service Charter, Benchmarking

8. Review plan (2) Performance Agreements, External Audits

Table-3B: Typical Best Practices for Operational Review

Operational Review Areas Typical Best Management Practices

9. Work Culture (2) Code of Conduct, Regular Staff Meetings

10. Communications (2) Annual Report, Website for Public

11. Organisation Structure (2) Organisation Chart, Job Descriptions

12. Reporting Lines (2) Delegation of Powers, Chinese Walls

13. Human Resources (2) H/R Manual, Training and Development

Programs.

14. Process & Systems (2) Rules and Procedure Manuals, ICT developmentPlans.

15. Controls (2) Financial Information System, ManagementInformation System

16. Expenditure and assetmanagement (2)

Asset Management Plan,Agency Overheads Analysis


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2.3 Strategic and Operational Performance Evaluation7

An agencys performance can be assessed in relation to the 16 performance factorslisted in Tables-3A and 3B. Each factor can be given scores on a scale of 0 to 5 byusing an approach adapted from the Australian Quality Council:

Table-4: Scores for Strategic and Performance Evaluation

0 Approach had not been considered or attempted or does not exist.

1 Some evidence of individual initiative and unsystematic efforts.

2 Approach is planned and introduced in some areas in a limited way.

3 Systematic approach has been implemented in some areas and results areunder examination.

4 Approach has been implemented in some areas and results/outcomes havebeen used to improve the planning and budgeting.

5 Approach used in most of the areas and results/outcomes have been usedto improve the planning and budgeting.

Then a Borda Index (i.e. sum of all ranks for all factors) can be estimated. This willprovide a composite index for rating performance of agencies. There are 32 (=16X2)sub-areas. So a maximum 160 marks can be scored by an Agency. Total score canbe expressed as a percentage of 160 marks. Percentage can also be calculatedseparately for strategic performance and operational performance. Then, total marksfor each category can be expressed as a percentage of 80 marks. It is most unlikelythat an Agency will be able to score 100% marks. On the basis of percentage ofmarks, the strategic performance or operational performance, or the combinedstrategic and operational performance of an Agency could be rated as follows:

Table-5: Rating of an Agency on the basis of Performance Scores

Rating of AgencyRange of Performance Scores

(in percentage)

(a)Effective (EF) 85 100

(b)Moderately Effective (ME) 70 84

(c)Adequate (AD) 50 69

(d)Ineffective (IN) 0 49

7Annex-2 ofthischapterprovides a Template for Strategic & Operational Evaluation.


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2.4 Budget Compliance, Efficiency and Effectiveness Evaluation

Under Budget Compliance Evaluation, program and sub-program wise budgetedexpenditure are compared with the actual expenditure, and the following marks areassigned to each program:

Table-6: Marks for Budget Compliance Evaluation

0 If actual expenditure exceeds budgeted expenditure by more than 10%.

1 If actual expenditure exceeds budgeted expenditure by more than 7.5 percent but less than 10 per cent.

2 If actual expenditure exceeds budgeted expenditure by more than 5 per centbut less than 7.5 per cent.

3 If actual expenditure exceeds budgeted expenditure by more than 2.5 percent but less than 5 per cent.

4 If actual expenditure exceeds budgeted expenditure by less than 2.5%.

5 If actual expenditure is within the budgeted expenditure.

Under efficiency evaluation, budgeted outputs are compared with actual outputs, andthe following marks are assigned to each program.

Table-7: Marks for Budget Efficiency Evaluation

0 If actual output falls short of budgeted output by more than 10 per cent.

1 If actual output falls short of budgeted output by more than 7.5 per centbut less than 10 per cent.

2 If actual output falls short of budgeted output by more than 5 per cent butless than 7.5 per cent.

3 If actual output falls short of budgeted output by more than 2.5 per centbut less than 5 per cent.

4 If actual output falls short of budgeted output by less than 2.5 per cent.

5 If actual output is at least equal to the budgeted output.

Under effectiveness evaluation, budgeted outcomes are compared with actualoutcomes, and the following marks are assigned to each program. However, one hasto wait a number of years before the outcome results are available. Therefore, forthe next three years, effectiveness evaluation may not be feasible.


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Table-8: Marks for Budget Effectiveness Evaluation

0 If actual outcome falls short of budgeted outcome by more than 10%.

1 If actual outcome falls short of budgeted outcome by more than 7.5 per centbut less than 10 per cent.

2 If actual outcome falls short of budgeted outcome by more than 5 per cent butless than 7.5 per cent.

3 If actual outcome falls short of budgeted outcome by more than 2.5 per centbut less than 5 per cent.

4 If actual outcome falls short of budgeted outcome by less than 2.5%.

5 If actual outcome is at least equal to the budgeted outcome.

After assigning marks for all sub-programs, actual marks obtained for all programs ofan Agency will be expressed as a percentage of total possible marks. The followingBox indicates the calculation of marks for an agency for compliance and efficiencyevaluation.

Template-3 attached to this chapter (for details see the main report on BudgetPerformance Evaluation Methodology and Systems prepared by Tarun Das in May2008) provides the templates for the compliance and efficiency evaluation for theprogram budget of the Ministry of Education, Culture and science (MoECS) for thebudget year 2008. However, it may be noted here that MOECS Program budget hasconfused between outputs and outcomes8. In the MOECS Program budget,immediate results of the Programs are called outcomes. But, these are, in fact,outputs of the program, and not outcomes.

To reiterate the exact definitions, outputs are the immediate or end results of aproject, whereas outcomes are the long term impact of the project on the society

after the completion of the project. For example, literacy rate is an outcome, numberof students is an output and number of teachers is an input. So, I have replacedoutcomes by outputs in the Template. While preparing the next ProgramBudget, the line ministries and the World Bank ECTAC Team may pleasekeep this distinction in mind.

8 For definitions of inputs, outputs and outcomes, consult Tarun Das and E.

Sandagdorj (2007a). Also consult the Budgets of the Australian Government for anyPortfolio.

Total number of sub-programs = NMaximum possible marks for both compliance and efficiency= 10NTotal marks obtained for compliance = M1Total marks obtained for efficiency = M2

Percentage of Marks assigned to the Agency for compliance evaluation= 100 * M1 / 5N = P1Percentage of Marks assigned to the Agency for efficiency evaluation= 100 * M2 / 5N = P2Percentage of marks assigned for both compliance and efficiency evaluation= (P1+P2)/2 = 100 * (M1 + M2)/ 10N


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2.5 Overall Assessment and Score

Thus, we have the following three broad evaluations:

(1) Strategic Plan and Baseline Profile Evaluation- Annex-1 provides 20 basicquestions each carrying 5 marks. Total marks obtained will be expresses as apercentage which will be the score for strategic plan evaluation.

(2) Strategic and Operational Performance Evaluation It has been explainedin section 2.3 above and the template is given in Annex-2. Total marks obtained willbe expresses as a percentage which will be the score for strategic plan evaluation.

(3) Budget Compliance and Effectiveness Evaluation It has been explained insection 2.4 above and the template is given in Annex-3. Total marks obtained willbe expresses as a percentage which will be the score for strategic plan evaluation.

For overall assessment a weight of 30 per cent will be given for strategic plan and

baseline evaluation (Annex-1), a weight of 20 percent will be given for strategic andoperational performance evaluation (Annex-2) and 50 per cent will be given forbudget compliance and effectiveness evaluation.

Table-9: Weights for Various Types of Evaluation

Type of Evaluation Weights

1-A Strategic Plan Evaluation Weight: 10%

1-B Systems Development Weight: 10%

1-C Human Resource Development Weight: 10%

2-A Strategic Performance Evaluation Weight: 10%

2-B Operational Performance Evaluation Weight: 10%

3-A Program Budget Compliance Weight: 25%3-B Program Budget Effectiveness Weight: 25%

Total 100%

Translating Performance Scores into Ratings: Finally, the overall performance scores will beconverted into qualitative ratings using the scoring bands given in the following table:

Table-10: Rating of an Agency on the Basis of Overall Scores


(in percentage)




(d)Ineffective (IN) 0 - 49


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There will be another category called Results Not Demonstrated when an Agencydoes not have performance measures that have been agreed by MOF either forbaselines or for the assessment year.

3. Budget Performance Evaluation Management

The Department of Fiscal Policy and Coordination (DFP&C) of the Ministry ofFinance may be made nodal department for conducting BudgetPerformance Evaluation in association with all line Ministries andbudgetary agencies. The management process and system along with timeschedules are described in Flow Chart-4. To start with DFP&C of the MOFwill prepare a detailed guidelines and manual for the Budget PerformanceEvaluation and would circulate the document among all agencies and lineministries after approval by the Cabinet Committee.


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1.Department of Fiscal Policyand Co-

ordination (DFP&C) ofthe MOF prepares

detailed guidelinesand manual on BudgetPerformance Evaluation (BPE),and

circulatestheDocument (alongwith

Annexes)among lineministries/Agencies

afterapproval bythe Cabinet Committee

no laterthanthe 30thApril.

2. Pilot LineMinistries/Agenciesare

selected byMOF for BPE bythe 5th

May.

5. Pilot LineMinistries/Agencies

finalizethe replyand resubmitthe

Budget Performance Evaluation Report

to MOF no latterthan 1st

August.

4. MOF givescommentsto the draft BudgetPerformance Evaluation Reportno laterthan

the 15th July.

7. The State Central Administrative Body

responsible for Financeand Budgetshall

compilethe Budget Performance

Evaluation Reports of pilot LineMinistries

and submitthesealongwiththe

consolidated Portfolio Appropriation

Estimatesto the Governmentno laterthan

the 15th of September.

8. The State Great Hural shall debateand

approvethe State Budgetno laterthanthe

1st of December.

9. Budget Performance EvaluationReport (BPER) published, publicly

released and put ongovernmentwebsite

no latterthan 15 December.

10.MOF and lineministries/Agenciesconductmulti-stakeholders feedbackseminars onthe Reportby 31 January.

11. DFP&C oftheMOF revisetheManual and Guidelines for BudgetPerformance Evaluationno latterthan

the 31stMarch.

3. Pilot LineMinistries/Agencies preparerepliesand assignmarksto the Templates

giveninAnnex-1 to annex-3 and submitsthe

draft replyto the DFP&C (by 1st July 2008).

6. MOF finalizes the Budget

Performance Evaluation Report

(BPER) and sends copies to the Line

Ministry Portfolio Minister and to the

State Central Administrative Body

responsible for Financeand Budgetno

latterthan 15 August. Portfolio Minister

also submitsthe Strategic Business Planto the State Central Administrative Body

responsible for Financeand Budgetno

laterthanthe 15th ofAu ust.

Flow Chart-4: Performance Evaluation System and Monitoring


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Selected References

Bergin, Jeffrey (2004) Performance Based Budgeting, Performance ManagementInstitute.

Canadian Comprehensive Auditing Foundation (2002) Reporting Principles:Taking Public Performance Reporting to a New Leve, Ottawa, 2002.

Das, Tarun (2008) Budget Performance Evaluation- Methodology, Systemand Management, pp.1-53, ADB Capacity Building Project on Governance Reforms,Ministry of Finance, Mongolia, Ulaanbaatar, May 2008.

Das, Tarun and E. Sandagdorj (2007a) Preparation of Strategic Business Plans-General Guidelines, Suggestions for Improvement, and Summary ofRecommendations, Final Report, pp.1-74, ADB Capacity Building Project onGovernance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar,30 Sept 2007.

Das, Tarun and E. Sandagdorj (2007b)Output Costing andOutput Budgeting-Basic Concepts and Methodology, pp.1-51, ADB Capacity Building Project onGovernance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar, October 2007.

Das, Tarun and E. Sandagdorj (2007c) Accrual Accounting and AccrualBudgeting- Basic Concepts and Methodology, pp.1-43, ADB Capacity Building Projecton Governance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar, November2007.

Das, Tarun and E. Sandagdorj (2007d) Transition from Cash to AccrualAccounting, pp.1-26, ADB Capacity Building Project on Governance Reforms, Ministryof Finance, Mongolia, Ulaanbaatar, November 2007.

Das, Tarun and E. Sandagdorj (2007e)Benchmarks Setting and Best PracticesforOutput Costing and Output Budgeting- Part-1: Basic Concepts, pp.1-31, ADBCapacity Building Project on Governance Reforms, Ministry of Finance, Mongolia,Ulaanbaatar, Dec 2007.

Das, Tarun and E. Sandagdorj (2007f)Benchmarks Setting and Best Practices forOutput Costing andOutput Budgeting- Part-2: Practical A pplications for Mongolia,pp.1-36, ADB Capacity Building Project on Governance Reforms, Ministry of Finance,Mongolia, Ulaanbaatar, Dec 2007.

Das, Tarun (2007g) Terminal Report: Part-1, Major Conclusions andRecommendations, pp.1-70 and Part-2 on Strategic Business Plans, Output costing

andOutput Budgeting, AccrualAccounting andAccrual Budgeting, and BenchmarksSetting, pp.71-157, ADB Capacity Building Project on Governance Reforms, Ministryof Finance, Mongolia, Ulaanbaatar, March 2008.

Government of Australia, Council on the Cost and Quality of Government(2001)Annual Report 2001, November 2001.

Government of Mongolia (2002) Public Sector Management and Finance Act(PSMFA, 27 June 2002).


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Government of USA (2005) Performance Management Process: StrategicPlanning, Budget and Performance Management cycle, General ServicesAdministration (GSA), Office of the Chief financial Officer, 31 January 2005.

Hatry, Harry P. (1977)HowEffective are your Community Services?, The UrbanInstitute, Washington, D.C.

Kaplan, Robert S. and David P. Norton (1996) The Balanced Scorecard:Translating Strategy into Action, Harvard Business School Press.

Mercer, John: See Website on GPRA and Performance Management:www.governmentperformance.info

Mercer, John (2003) CASCADE Performance Budgeting- A Guide to an EffectiveSystem of Integrating Budget and Performance Information and for Linking Long-Term Goals for Day-to-Day Activities, USA, May 2003,www.governmentperformance.info

Meyers, Roy T. (1996)Is There a Key to the Normative Budgeting Lock, The WorldBank, Washington, D.C.

Schick, Allen (1995) Federal Budget: Politics, Policy and Process, BrookingsInstitution.

Steiner, George; Simon and Schuster (1997) Strategic Planning: WhatEveryManager Must Know.

Thomas, Paul G. (2004)Performance Measurement, Reporting andAccountability:Recent Trends and Future Directions, Saskatchewan Institute of Public Policy PaperNo 23, February 2004; http://www.uregina.ca/sipp/

Thomas, Paul G. (2005) Performance Management and Management in the PublicSector, Optimum Online The Journal of Public Sector Management, Vol 35, Issue2, July 2005. http://www.optimumonline.ca/

Thomas, Paul G. (2006) Performance Measurement, Reporting, Obstacles andAccountability -Recent Trends and Future Directions, Research School of SocialSciences, The Australian National University, Canberra ACT 0200.

USA (1993) Government Performance and Results Act (GPRA) of 1993, Office of Managementand Budget (OMB).

United States of America, Office of Management and Budget (OMB) Homepage:http://www.whitehouse.gov/omb/gils/gil-home.html


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Template -1

Template for Review of Strategic Business Plan (SBP)And Baseline Profile of the Agency

Name of the Line Ministry ________________________________

Name of the Budgetary Agency _____________________________

Location _______________________________________________

Part-1: Strategic Business Plan (SBP) (Total Marks=50)

1. Do you have a Strategic Business Plan for your Agency? If Yes, answer thefollowing questions. Answers should be brief and to the point. It may be notedthat each question carries 5 marks and answers will be evaluated by theMinistry of Finance.

Q1. Which is the period of your latest SBP? Does the SBP contain all thecomponents of a standard SBP as recommended by the MOF viz. MinistersForeword, GMs Statement? Vision, Mission, Values, Priorities, Clients, StrategicGoals andObjectives, SWOTAnalysis, StrategicOutcomes. Outputs, Processes andActivities, Medium Term Budget estimate, Organisational Structure, System forMonitoring and Evaluation? If some components are missing, indicate thosecomponents and give reasons for not developing those components.

Q2. Does any of the Millennium Development Goals (MDGs) concern your Agency?If yes, indicate the MDGs which relate to your Agency. Have you considered theseMDGs and suggested measures to achieve those goals in your Strategic BusinessPlan? If yes, give details.

Q3. Does your Agency have a Master Plan? If yes, for which period? Have youlinked SBP to the Master Plan? Give a brief account of these linkages.

Q4. Indicate briefly Vision, Mission, Values, Priorities, Strategic Goals andObjectives.

Q5. Reproduce the SWOT Table from the Agencys SBP, if you have one.

Q6. Who are your clients? Is the Client base growing, shrinking or stable? Do theyneed differentiated products, services, locations and quality? Are there significantgroups of potential clients who are not currently being reached? If yes, why? How

do you add value for clients and how can you serve them better?

Q7. Provide a current organizational chart of your agency?

Q8. Provide a list of the broad output groups indicated in your SBP. If the totalnumber exceeds 25, list the most important 25 outputs or output groups.

Q9. How well do your current information and communications technology (ICT)systems assist in meeting your mission and long term goals? How is your Agency


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developing and strengthening the ICT and the skills and capabilities of theworkforce to meet these needs? Are there any critical management issues whichalso need to be addressed?

Q10. List and rank the highest priority strategic initiatives and operational prioritiesrequired for the success of your Agency. Identify any new proposals, anticipated

outputs and link them to your strategic plans.

Part-2: Systems Evaluation (Total Marks=25)

As in Part-1 each question carries 5 marks and replies will be evaluated bythe MOF.

Q11. Does your Agency have a system for continual monitoring and annualevaluation of performance parameters recognized in your SBP and Annual Budget?Are the annual Performance Evaluation Reports used consistently to justify fundingrequests, management actions and legislative proposals? If yes, describe theevaluation system and illustrate your reply on the basis of latest budget.

Q12. Do your senior agency managers meet at least quarterly to examine reports onfinancial and performance information for all outputs/ programs of the Agency?(Evaluation: 5 marks if meetings held at least once in a quarter, 3 marks ifmeetings held at least once in six months, 2 marks if meeting held at least once ina year, 0 marks if no such review meeting is held in a year).

Q13. Does your Agency have well designed plans to improve program performanceand efficiency each year? If yes, provide evidence.

Q14. Does the latest Annual Budget and performance documents incorporateperformance measures identified in the SBP and Master Plan? If yes, provide

evidence.

Q15. Does your Agency have a proper costing methodology? Does the methodologyreport the full cost of all outputs accurately in the budget and performancedocuments? If yes, describe the methodology.

Part-3: Human Resource Development (Total Marks=25)

As in Part-1 and Part-2, each question carries 5 marks and replies will beevaluated by the MOF.

Q16. Do you have Performance Evaluation Reports at least for the middle level and

senior level officers? Are these Evaluation Reports used for placements, promotionsand training for officers? Are these Reports also used to direct programimprovements and hold managers accountable for those improvements? Provideevidence for your answer.

Q17. Has your Agency implemented a comprehensive Human Capital Developmentand Utilization Plan that is fully integrated with the agencys overall strategic planand annual performance goals? If yes, provide a brief account of the plan.


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Q18. Has your Agency analyzed the existing organizational structure from serviceand cost perspectives and is implementing a plan to effectively develop, train,deploy, restructure, recruit and retain employees? If yes, provide a brief account ofthe plan.

Q19. Does your Agency used competitive sourcing, E-Gov solutions, as necessary;

and has processes to address future changes in business needs?

Q20. Does your Agency have succession strategies, including structured leadershipand talent pool development programs, and is able to close leadership competencygaps?

Summary of total marks and grading:

Questions Marks forPart-1



Q1 M11 Q11 M21 Q16 M31Q2 M12 Q12 M22 Q17 M32

Q3 M13 Q13 M23 Q18 M33Q4 M14 Q14 M24 Q19 M34Q5 M15 Q15 M25 Q20 M35Q6 M16

Q7 M17

Q8 M18

Q9 M19

Q10 M110

Total Marksobtained(M)

Sum ofMarks(M1)

Sum ofMarks(M2)

Sum ofMarks(M3)

Express Mas % ofmaximummarks

P1 = 100 *M1/ 50 P2 = 100 *M2/ 25 P3 = 100 *M3/ 25

Grade youragency9

G1 G2 G3

Overall Marks for Parts 1, 2 and 3 M = M1 + M2 + M3

Express M as % of maximum marks P = 100 * M / 100 = M

Grade your agency G

9Grades are determined as per the following Table:


(in percentage)




(d)Ineffective (IN) 0 - 49


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Template -2

Template for Strategic and Operational Review

On the basis of factual information, rank the following activities of your Agency on ascale of 0 to 5. The rankings must be based on the following score card.

0 Approach had not been considered or attempted or does not exist.

1 Some evidence of individual initiative and unsystematic efforts.

2 Approach is planned and introduced in some areas in a limited way.

3 Systematic approach has been implemented in some areas and results areunder examination.

4 Approach has been implemented in some areas and results/outcomes havebeen used to improve the planning and budgeting.

5 Approach used in most of the areas and results/outcomes have been used toimprove the planning and budgeting.

A. Strategic Review Areas- Best practices Ranking(Marks)

1. Strategies andreviews

1.1 Do you have a Strategic Business Plan?

1.2 Do you have a Master Plan of yourAgency?

2. Environment 2.1 Have you conducted recently any socio-economic and political environment analysisfor your Agency?

2.2 Does your Strategic Business Plan containa SWOT analysis?

3. Clients 3.1 Have you conducted any clients needsassessment and satisfaction surveys?

3.2 Do you have a permanent andindependent unit to deal with grievances andcomplaints of your clients?

4. Other stakeholders 4.1 Do you conduct multi stake holders'consultations/ workshops regularly?

4.2 Have your Agency formed focus groupsfor the services of your Agency?

5. Regulation 5.1 Has there been any regulatory review ofthe activities/ functions/ programs of yourAgency?

5.2 Has there been any review of theactivities/ functions/ programs of yourAgency by any Committee of the Parliament?

6. Policy regime 6.1 Is there any Ministerial Statement on thevision, mission, objectives and scope offunctions of your agency?

6.2 Have the donors made any review offunctions of your Agency?


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7. Service delivery 7.1 Have you published any Service Charterindicating rights of your clients?

7.2 Have you conducted any benchmarkinganalysis for the cost and quality of the goodsand services supplied by your Agency?

8. Review plan 8.1 Have you signed performance

agreements with the MOF?8.2 Have the programs been audited by toaudit authority?

Grading of Agency for Strategic Performance Evaluation

Total Marks obtained(M1)

Sum ofMarks

Express M1 as % ofmaximum possiblemarks (i.e. 80)

= 100 * M1/80

Grade your agency10 G1

B. Operational Review Areas- Best practices Ranking(Marks)

9. Work culture 9.1 Is their written code of conduct for thestaff?

9.2 Do the senior officers hold reviewmeetings regularly with subordinate staff onworks plan?

10. Communication 10.1 Does the Agency produce an AnnualReport every year?

10.2 Does the Agency have a Website forpublic information?

11. Organizationstructure

11.1 Does the Agency have an updatedorganization chart?

11.2 Does the Agency have written workcharts and allocation of works for all staffmembers?

12. Reporting lines 12.1 Does the Agency have writtendelegation of powers?

12.2 Does the Agency follow the principle ofChinese Wall11?

13. Human resources 13.1 Does the Agency have an updatedManual on human resource development andutilization?

10Grades are determined as per the following Table:


(in percentage)

(e)Effective (EF) 85 100

(f) Moderately Effective (ME) 70 84

(g)Adequate (AD) 50 69

(h)Ineffective (IN) 0 - 49

11


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13.2 Does the Agency have permanenttraining program for skill development?

14. Process andsystems

14.1 Does the Agency have an updatedManual on general rules and procedures forthe Agency?

14.2 Does the Agency have a definite plan for

ICT upgradation?15. Controls andmetrics

15.1 Does the Agency have computerizedgovernment finance information system foraccounting and auditing?

15.2 Does the Agency have generalmanagement information system (MIS)?

16. Expenditure andasset management

16.1 Does the Agency have a definite planand program for asset management?

16.2 Does the Agency conduct regularanalysis for management of agencyoverheads?

Grading of Agency for Operational Performance Evaluation

Total Marks obtained(M2)

Sum ofMarks

Express M2 as % ofmaximum possiblemarks (i.e. 80)

= 100 * M2/80

Grade your agency

(as given in footnote11)

G2

Overall grading:

Total Marks obtained

(M)

M =

M1 + M2Express M as % ofmaximum possiblemarks (i.e. 160)

= 100 * M/160

Grade your agency

(as given in footnote11)

G2

17. If the grade is ineffective, analyze reasons for that and suggestmeasures for improvement?


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Template -3

Template for Compliance and Efficiency Evaluation

Here we present an example from the Program Budget for the Ministry ofEducation, Culture and Science for the budget year 2008. However, it may

be noted here that MOECS Program budget has confused between outputsand outcomes12. Immediate results of the Programs are called outcomes.But, these are, in fact, outputs of the program, and not outcomes.

To reiterate the exact definitions, outputs are the immediate or end results of aproject, whereas outcomes are the long term impact of the project on the societyafter the completion of the project. For example, literacy rate is an outcome, numberof students is an output and number of teachers is an input. So, I have replacedoutcomes by outputs in this Template. While preparing the next ProgramBudget, the line ministries and the World Bank ECTAC Team may pleasekeep this distinction in mind.

Program/ Output Budgeted ActualPerformance

Marks

Pre-school education Total budget: 69.6billion. MNT

1.Services for end-users Total budget: 64.3billion. MNT

Budget share of Pre-schooleducation: 92.4%

Output 1.1Kindergarten service

Total budget: 61.2 billion MNT

% withinthesection: 95.0%

y Number ofchildrentobe

covered : 96901Output 1.2

24-hour kindergarten servicesTotal budget: 1.0 billion MNT


y Number ofchildrentobecovered: 1239

Output 1.3Preschool education alternative

services

Total budget: 2.2billionMNT


y Number ofchildrentobecovered: 37682

2. Policy renovation activities(strengthening institutions )

Total budget: 5.13billion. MNT

Budgetshare of Pre-schooleducation: 7.4%

12 For definitions of inputs, outputs and outcomes, consult Tarun Das and E.

Sandagdorj (2007a).


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Annex-4:

Methodology for calculation of composite score and grading the LineMinistry/ Budgetary Agency

For overall assessment, a weight of 30 per cent will be given for strategic plan andbaseline evaluation (Annex-1), a weight of 20 percent will be given for strategic andoperational performance evaluation (Annex-2) and 50 per cent will be given forbudget compliance and effectiveness evaluation.

Type of EvaluationWeights Marks

obtained

% of Marksin totalmarks in thecategory

Weightedpercentage

Grades

1-AStrategic PlanEvaluation

10%M1 P1

10% * P1 G1

1-B SystemsDevelopment

10% M2 P2 10% * P2 G2

1-CHuman ResourceDevelopment

10% M3 P3 10% * P3 G3

2-AStrategicPerformanceEvaluation

10% M4 P4 10% * P4 G4

2-BOperationalPerformanceEvaluation

10% M5 P5 10% * P5 G5

3-AProgram BudgetCompliance

25%M6 P6 25% * P6 G6

3-B Program BudgetEffectiveness

25% M7 P7 25% * P7 G7

Total 100% M P P G

Translating Performance Scores into Ratings: Finally, the overall performance scores will beconverted into qualitative ratings using the scoring bands given in the following table:


(in percentage)

(e)Effective (EF) 85 100

(f) Moderately Effective (ME) 70 84

(g)Adequate (AD) 50 69

(h)Ineffective (IN) 0 - 49

There will be another category called Results Not Demonstrated when anAgency does not have performance measures that have been agreed by MOF eitherfor baselines or for the assessment year.


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Chapter-11Program Budgeting and

Program Assessment Rating Tool (PART)

1. Introduction and Scope

Three line ministries of the Government of Mongolia viz. Ministry ofEducation, Culture and Science (MOECS), Ministry of Food and Agriculture(MOFA) and the Ministry of Social Welfare and Labor (MOSWL) under theguidance of the World Bank ECTAC Project have introduced Program Budgetfor the budget year 2008. These budgets are based on Korean system ofProgram Budgeting introduced in 2005 also with the help of the World Bank

consultants (see John M. Kim 2007 and Katherine Barraclough 2005).

Program budgeting as a concept belongs more to the realm of budgeting

infrastructure than to the frontline of topics and best practices in budgeting--examples of which include performance-based budgeting, accrual outputbudgeting (AOB), Activity-Based-Costing (ABC) or multi-year budgeting.Present paper discusses basic concepts and structure of a Program Budget,methods for its effective implementation and methodology for assessment ofits performance. However, this is just an introduction to the subjects. Thedetailed methodological paper on these issues will be prepared next month.

1.1 What is a Program?

IMF Manual for Fiscal Transparency defines Programsas the groupings ofgovernment activities in relation to specific government objectives.

Programs are considered as the basis for budget appropriations andallocations of resources for the line ministries andother budgetary agencies.

1.2 What is Program Budgeting?

The traditional input budgeting is in fact the proverbial "black box" of annualspending, where funds are allocated by traditional line-item budgets toagencies, but it does not indicate what the money actually achieves. Thusunder line-item budgeting, while the budget and audit officers know whatinputs are being purchased, they have no knowledge of what activities arebeing performed for what purposes, and ultimately what outputs or outcomes

are being purchased. A common first step for many countries towardsopening the black box of spending is to adopt a program classification ofspending, and introduce program budgeting. Program Budget seeks tomanage fiscal resources more effectively by identifying and prioritizinginstitutional goals and providing funds towards those programs which best

support these goals and objectives.


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2. Origin and Merits of Program Budgeting

2.1 Origin of Program Budgeting

The starting point for most forms of performance budgeting, includingAccrual Output Budgeting (AOB), is program budgeting, which was thestandard public budgeting practice throughout Australia in the 1980s prior tothe adoption of AOB. AOB incorporates most of the former programbudgeting framework. The annual government budget documents under AOBreport the breakdown of funds allocated to broad output groups within eachDepartment, very much like the former programs13. These output groupsare groups of related outputs designed to deliver the same outcome14. Eachbroad output group comprise a number of sub-output groups, like the former

sub-programs.

Budgetary allocations for the separate output groups are not binding.Instead, parliamentary appropriations for departmental outputs are global,

just as they were under the former program budgeting regime15. In otherwords, parliament approves for each department one aggregate sum to coverall the outputs for which the department is responsible, but has the flexibilityto reallocate funds between outputs during the year in response tounanticipated events and as per legal requirements for accounting andauditing.

Although AOB has its roots in program budgeting, it differs from the programbudgeting in many respects. First of all, it incorporates private business andcompetitive market environment in government activities to ensureefficiency. Essentially, it builds a market-type superstructure upon program

budgeting foundations (WAT 1996a). In this respect, it differs considerablyfrom the forms of performance budgeting which operate in other countries

and do not generally regard agency profit results as a key performancemeasure. To take an example, in the USA under the system of performancebased program budgeting the annual budget for each agency passed by thelegislature includes only output and outcome targets, but no prices. TheUnited Kingdom has developed since 1998 a system of Public ServiceAgreements and Service Delivery Agreements between the Government andagencies linked to the budget. In Australia, New South Wales is the onlystate not to have adopted accrual output budgeting.

13

Output groups under Accrual Output Budgeting in Australia are defined in such a way that theymore truly reflect the concept of an output than that under the program budgeting practice. Forexample, departments are not permitted to use corporate services as an output group, althoughcorporate services programs were common under program budgeting.

14The Commonwealth refers to Outcomes rather than output groups, meaning the same thing.

15The Commonwealth submits appropriations to Parliament in a form grouped into outcomes.

However, this allocation is not binding, and is purely for information(DOFA, 1998; 1999c).


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Another important aspect of the Australian AOB, as compared to programbudgeting, is that the capital appropriations to departments have now beenre-labeled as equity injections16. Ministry of Finance asserts that, in additionto equity injections, departments like private corporations may have accessto two main alternative sources of capital funding. The first is the so-called

depreciation-based capital funding, which is a draw-down from theaccumulated depreciation reserves. The other is the rearrangement of theasset structure, an accounting jargon for funds derived from departmentalasset sales or disinvestment or privatization (Robinson, 2002a).Consequently, Australian agencies, like private enterprises, enjoyconsiderable degree of freedom for new investments.

So-called capital charging has also been introduced by most of the states inthe Australian AOB system. Capital charging is a private-sector idea toinclude it as a part of the output cost to reflect return on capital. Its firstapplication to the public sector appears to have been by the British National

Hea

ADB Project on Governance Reforms in Mongolia- Terminal Report Part-4 by Tarun Das

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